By Steve Moran
If your senior living community is 100% occupied with a waitlist, and you are fully staffed, this article is not for you.
For the rest of you, I have a question: Why are you leaving all that money on the table?
Being less than 100% full means tens to hundreds of thousands of cash flow dollars on the table each year. And most of that cash flow would go straight to the bottom line. Adding insult to injury, reduced cash flow means that when you want to refinance or sell your community, you are leaving millions of dollars in asset value on the table for the next buyer.
Why Are You Doing This?
At this point, you are no doubt cursing me out, calling me an idiot. I understand why, sort of, but hear me out. This is something I have thought about for a long long time.
We Know …
We know that regardless of the senior living organization, if an individual community has a great executive director, that community will be full.
It will be full in spite of the fact it is in an oversaturated marketplace.
It will be full in spite of the fact that the building is older and has some functional obsolescence.
It will be full even if the operating company is not very good.
It’s All About the Executive Director … Two Stories
Story 1: I have a friend who is a nursing home administrator, and he is being paid about $350,000 a year to run a 99-bed nursing home that is nothing special, except for him. This nursing home is owned by an independent operator who, after going through a number of management companies, decided to higher an administrator who could make a difference, and to pay two or three times the going rate but not pay a management fee. My friend gets the lifestyle he wants, and the owner is making millions more than he was with a management company.
Story 2: I have another friend who owns one small memory care community that has had a few moments of tremendous success and a few moments of “take your breath away” negative cash flow because of occupancy, but that has mostly had substandard bumps around breakeven cash flow — while paying a management company $250,000-$300,000 per year.
He recently fired the management company and hired an executive director who he will pay two to three times the going rate (some of which is incentive based), and I predict that executive director will have the lifestyle they want, and the owner will see more cash flow than he has ever seen in his life.
Invest in Results
Operators invest in all kinds of things — fancy buildings and amenities, amazing dining programs, dozens of different technologies — but the one thing no one seems to be willing to really invest in is a serious, world class training program for executive directors. And I don’t get this.
Imagine Brookdale or even a group of smaller, independent, regional operators created a school that created first class executive directors. Or what if they did something like funding the Granger Cobb Institute at Washington State University to do it from them.
What if it became the Harvard of senior living, where those students could come out of the program and each make $100,000 or $200,000 a year because your community would be full and fully staffed? What if Welltower or one of the other REITs got serious about leadership?
They would make so much money, have so much success, it makes one’s head spin.
A few operators, a few owners, get lucky and hire a few great executive directors. Then for the rest of the communities, they cycle through a mix of average and below average executive directors.
Contributing to the problem is that amazing executive directors do generally make a little bit more money, but they are not fairly compensated for the wealth they create for owners, which blunts the incentive for average executive directors to become stars.
This more than anything would transform senior living, because there are enough residents for every senior living apartment in this country.